According to the Office for National Statistics (ONS), an estimated 1.1 million people in the UK were on zero-hours contracts as their main job from October 2021 to the end of September 2022. This equates to an average of 3.2% of all employment in the UK.
Zero-hours contracts are a controversial subject in the UK. Some people argue that they offer flexibility for employers and employees, but others argue they can be taken advantage of and leave people without job security.
What are zero hour contracts?
A zero hours contract is often regarded as the most flexible of all formal working arrangements.
The contract will often set out an agreement for work at a set rate, but does not require any commitment from the employer to state specific, or even a minimum, number of hours. Employees are then paid for the number of hours they work. However, there is no obligation on their part to accept the work offered.
A large number of contractors and freelancers are zero-hour contract workers, and also a big proportion of NHS and retail staff. These contracts often make sense in sectors where specialist skills are only needed on an ad-hoc basis.
The downside of a zero hours contract income is the uncertainty. Due to the nature of the contract, a worker could be called in at short notice, and might not know when their services or skills will be required again.
As there is a level of uncertainty, this means that lenders have been reluctant about offering a residential mortgage to first time buyers on zero hours contracts in the past. The good news is that this is changing, and now more lenders recognise the need to offer a mortgage on a zero hour contract.
Is it more difficult to get a zero hour contract mortgage?
When it comes to getting a mortgage on a zero hour contract, it can be more difficult, as most mortgage providers will consider your employment to be on an insecure basis. This is because most lenders will want to see evidence of regular income and job security when considering mortgage applications.
This doesn’t mean that you won’t get mortgage approval as there are some specialist lenders and, even high street lenders, who will consider zero hour contract income.
Getting a mortgage with a zero hour contract
“Getting a mortgage for zero hour contracts is possible, but a lot of lenders will consider you to be higher risk. Mortgage providers may be hesitant to lend to you unless they are satisfied that you are financially stable enough to be able to make your regular mortgage repayments.”
Mike Plaster, Mortgage Broker @ Millennium Mortgages
When assessing your case, Mike says that lenders will usually consider the following:
Employment history
If you have a track record of similar roles in the same sector, or with the same employer, most mortgage lenders will accept that your employment is secure. Therefore, they might accept your mortgage application.
If you have large gaps in your employment, or if you have only recently started a new job on a zero-hours contract basis, a mainstream lender may be hesitant about lending to you.
Your income
As with any mortgage applicant, a mortgage lender will consider your income when assessing your affordability for a mortgage. They need to ensure you have the financial stability to make your repayments.
Providing earnings are high enough for a mortgage, zero hours contract workers’ applications should still be considered, even though your income may be seen as less stable than someone who has a full-time contract.
Occupation
Your occupation has a major impact on your mortgage application. If you are in a role that requires a high amount of professional skill, and qualifications that have been acquired over a long period, your mortgage chances will be greater. This is because moving onto a new job will be less difficult than somebody who has fewer skills and qualifications on their CV.
Will I need a large deposit as I’m on a zero hour contract?
How much deposit you will need will totally depend on the mortgage provider you choose, and what loan-to-value (LTV) products you are eligible for.
Many mortgage lenders will need you to put down a larger deposit because of the perceived risks associated with your income structure. However, it could still be possible to get zero hour contract mortgages at 95% or 90%. This means that you would only need to put down the remaining percentage as a deposit of the property value, with the help of a specialist mortgage broker.
There are some advantages to putting down a larger deposit, as some lenders will offer you a more competitive mortgage deal.
If this is possible, you could benefit from lower interest rates and smaller monthly repayments, so even if you are eligible for a mortgage with a smaller deposit, it could be worth paying more upfront if you are able to.
How to get a mortgage for zero hour contracts
- Get Professional Advice – If you are on a zero-hours contract, you should speak to a mortgage advisor. They will be able to look at your financial situation and advise you about the best way to get a mortgage, and help you find the right lender and find the more favourable interest rates that are available to you.
- Check your Credit File – If you have bad credit or a poor credit score, it can make it more difficult to secure a mortgage. You might not be able to use mainstream lenders, therefore a specialist lender who specialises in adverse credit might be the only option available to you. Your mortgage advisor will be able to explain this in more detail.
- Gather Evidence – Once you have spoken to a mortgage advisor, they will ask you to start gathering the relevant documentation. This includes documents such as your last three months bank statements, credit reports and payslips. You will also likely be asked to provide details of your employment, such as where you work and what hours you currently do.
- Save More Towards a Deposit – The larger your deposit, the less risky lenders view your application. This means you are more likely you are to be accepted for a mortgage.
- Be Prepared for Higher Interest Rates – You might find that interest rates are higher if you are accepted for a zero hours contract mortgage. However, if your credit rating is good, and can show that you can make your repayments, you may be able to get a better deal.
- Improve your Credit Score – Make sure your credit score is as high as possible as this will improve your chances of being accepted for a mortgage, and enable you to access lower interest rates. By making all your payments on time, and keeping your balances low, you can work to improve your score.
Conclusion:
If you are a zero hour contract worker, do not panic! It is definitely still possible for you to secure a mortgage, but it is vitally important you get reliable mortgage advice from reputable mortgage brokers, as you are deemed by a few lenders as a high-risk borrower.
The team at Millennium Mortgages are well versed in zero hours contract mortgages, and have worked with most lenders to secure mortgage deals for many zero hour workers in the past.
Book a free no obligation mortgage appointment today to see what we can do for you.
Information contained within this blog was correct at the time of publication ( 03/05/23) and is subject to change.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Mike Plaster is CeMap qualified CAS status Mortgage and Protection Adviser able to assist on both Residential and Buy To Let Mortgages as well as Life Insurance, Critical Illness Cover and Income Protection.